Friday, July 15, 2011

Editorial: New online tax law relies on conscience (update)

Note: On further research, I've rewritten this substantially.

Our hambone Republican Legislature makes another pointless, toothless law pretending to do something about revenues, and the unnamed Courier editor calls foul. He's right as far as he goes, that if they want to raise revenues, a new line on the annual tax form for volunteering your online sales-tax obligation is a dumb way to go about it. But is it really too much to ask that he think the issue through a little further?

Start with why online purchases have not been taxable till recently. This category was specifically exempted from sales taxes in the nineties to help get the industry off the ground (and attract a big operation by Amazon).

I always presumed that out-of-state transactions were exempt since the heyday of mail-order, but I'm informed that Arizona has been in theory taxing mail-order sales -- and legally, even purchases you  make out of state and bring back in -- since 1955. 

How legislators legally justify this is difficult to fathom. Out-of-state sales have no impact on in-state services. Other taxes infer some sort of cost-for-benefit element. How can we demand money for literally nothing?

With the rise of online purchasing, the Legislature decided to start trying to get at those lost transactions. So they're sticking a new line on your tax form so you can be right with the law, if you feel like it, and if you remember how much you spent. What they haven't figured out yet is how to enforce it. Before that happens, and I guarantee it'll be ugly, better we climb back in from this legal limb and find more sensible ways to generate state revenue.

Sales taxes are regressive, and the patchwork of state and municipal sales taxes we labor under is ridiculously complicated and bad for business. And because they're so easily circumvented in many cases, they lead to inequities in business and don't produce the revenue they're supposed to.

The people who get the most benefit from sales taxes are the investor class, who can engineer sales taxes in place of more progressive income taxes and more clearly justifiable corporate taxes.

If we continue to pick away at sales taxes, the result will be regressive for the state in terms of money flight, tourism impact, small business failures, and even less reliable state revenues.